(FORTUNE Magazine) – LET'S ASSUME the best possible outcome in the Middle East -- a brief conflict, restoration of Kuwait, and little or no serious damage to the oil fields. Here's what will happen: Oil prices will remain volatile but not so prone to breathtaking spikes as in the 1970s; a more rational OPEC will emerge; and George Bush, fresh from victory, will have a historic opportunity to press for a long-range policy that will enhance American energy security. The most likely scenario: -- The oil glut will continue. One of the big surprises of the Gulf crisis is how quickly and smoothly OPEC producers turned on faucets that hadn't been used in years. In the third quarter of 1990, after the U.N. embargo was declared against oil from Iraq and occupied Kuwait, the world was short two | million barrels of oil a day. Adam Sieminski, senior oil analyst in Washington for County NatWest, calculates that by the fourth quarter the shortage had turned into a daily surplus of 500,000 barrels. He believes that will increase to 1.5 million in the first three months of this year -- even with the outbreak of hostilities. OPEC is now producing over 24 million barrels a day, the most in ten years. The prime pumper is Saudi Arabia, which turned production up from 5.6 million barrels a day to just over eight million. Without this increase, oil prices would be a lot higher, consumers a lot madder, and the world's economies a lot weaker than they are. Perhaps as much as four billion barrels are stockpiled around the world. Much of it is sloshing around in tankers, floating storage anchored far from the battlefield. And some is in government reserves. Just as the air forces began hitting Iraq, President Bush announced that for a month he would sell over one million barrels a day of crude oil from the Strategic Petroleum Reserve. At the same time demand for oil is falling, thanks to recession and prices sent higher by the August invasion of Kuwait. A warm winter and the coming of spring will further damp consumption. When hostilities began, the Saudis turned off production at some strategically vulnerable wells, such as those in a neutral zone between Saudi Arabia and Iraq. Although Iraqi forces managed to blow up some storage tanks, such minor damage should not reduce supply significantly. John Lichtblau, CEO of the Petroleum Industry Research Foundation, says the war is unlikely to take more than two million barrels a day of Gulf oil off the market. High levels of inventory, releases from strategic reserves, and falling demand will easily compensate. -- Prices will remain volatile. Less than 24 hours after the war began, oil fell $10 a barrel, the biggest one-day slide ever. Philip Verleger of the Institute for International Economics thinks it could reach $15 a barrel. Sieminski says $12 is possible. Don't be surprised if it bottoms out in the $7 range, the low it hit in the free fall of 1986. But it won't stay down long because OPEC is still very much alive. In its December meeting, which both Iraq and Kuwait attended, the cartel agreed to return to the production quotas that existed prior to the crisis once the oil embargo is lifted. OPEC members that have ramped up production will cede much of that new market share back to Iraq and Kuwait. This will permit these two countries to earn the foreign exchange necessary to rebuild their shattered economies. For a while at least, expect OPEC to be a far more united -- and cautious -- bunch. The Kuwaiti-style cheating on production quotas that drove down prices and gave Saddam Hussein an excuse to invade his neighbor will disappear for a time. And the price hawks, notably Iran and Iraq, will be too weak to squeak for extortionist increases. -- The Saudis will be stronger than ever. Still protected by the armed might of the coalition forces and boosted by the economic strength of their vast oil reserves, the Saudis will call OPEC's tune. Verleger expects that the kingdom will probably welcome a short period of bargain-basement prices. It could reward its protectors -- particularly George Bush, who faces reelection next year -- by giving the world economy a boost. With that achieved, says Verleger, the Saudis and the rest of OPEC will try to raise the price of crude to about $25 a barrel by the end of the year -- and will likely succeed.

-- What the U.S. should do. If this scenario is correct, the oil business will soon return to something close to the status quo ante: reasonably low prices and bountiful supplies. So what incentives will the U.S. have to change its energy-consuming ways? For one thing, American blood has been shed. Second, the Middle East still has two-thirds of the world's oil reserves, and many nations, particularly in the developing world, will be competing for that oil. Third, unless unprecedented peace negotiations follow the war, the area will remain highly unstable. The world has learned important lessons from the oil shocks of the Seventies. Energy markets are much more stable and mature than they were when prices went wild and lines of frantic motorists formed at the pumps. One reason: The futures market, which didn't exist when the Ayatollah Khomeini came to power in Iran in 1979, adjusts the crude price daily in response to events, rumors, and speculations. Sure, prices surged on the threat of war, but they also dropped as supply increased and markets adjusted. So even when the mightiest air force ever assembled cut loose in the world's most important oil patch, the price of crude was only 50% higher than it had been before the crisis broke. In 1979 prices nearly trebled and stayed there for more than two years. Another reason the pricing mechanism failed back then: U.S. government interference in the form of price restrictions and gasoline allocations. This time Washington relied on the Strategic Petroleum Reserve, which takes advantage of, rather than fights, market forces. The reserve, which helped eliminate fears of shortage, now holds over 550 million barrels of oil -- equal to roughly 90 days of net imports -- and a recent act of Congress called for stocking it with one billion barrels but set no deadline. When the reserve is expanded, some stocks should be in the form of already refined products like gasoline, which reach the market much more quickly than crude oil. Lichtblau suggests that our allies might increase their strategic stocks as well: The U.S. consumes 46% of the oil used by the 26 nations in the International Energy Agency but holds 69% of the members' reserves. SITTING ON President Bush's desk is a long list of options he promised to fashion into a new energy policy this year. Since cars and trucks burn some eight million barrels of oil a day, almost equal to imports, his energy initiative should attack the use of gasoline in transportation. If the postal service and UPS ran their fleets, 255,000 vehicles in all, on natural gas, for example, the savings would be ten million barrels of oil a year, more than one day's imports. By raising the gas tax annually at least 5 cents a gallon, the government could cut consumption about 2.5% after five years. It could also push the average fuel efficiency of cars above the present 28 miles per gallon. When regulations forced fuel efficiency from 14 mpg to 28 mpg, the savings amounted to roughly two million barrels of oil per day. That's roughly the production of pre-war Kuwait, according to Dennis Eklof of Cambridge Energy Research Associates. Any new policy should open up promising oil and gas exploration regions, such as offshore California and Florida and Alaska's Arctic National Wildlife Refuge. And America's energy priorities for this decade and beyond should include more money for research into alternative energies, including nuclear power. If Operation Desert Storm restores a sovereign nation, secures reliable energy for the world economy, and lays the foundation for a more stable world order through the United Nations, it will indeed become a proud chapter in American history. If it also inspires a wiser use of energy, we should be additionally grateful.